Bear Edwards Upbeat Over European Stocks

John Authers and Alexandra Stevenson in London

Wednesday, 16 Jan 2013 | 1:21 AM ETFinancial Times

SHARES

Darrell Gulin | Stone | Getty Images

It might not rank as a Damascene conversion, but one of the more notorious market bears has tempered his trademark gloomy predictions boosting the hopes of bulls for a broader shift in investor sentiment.

Albert Edwards, the chief global strategist for Societe Generale, triggered a flurry of speculation over a shift in his famously bearish views when he spoke of a "once in a lifetime opportunity" to buy European stocks.

Mr Edwards is regarded as the most dogged "bear" in the City of London, persistently taking a downbeat view of the outlook for equities and arguing for his theory that markets are in an "Ice Age" of low bond yields.

With many investors starting to believe that a new "bull market" rally in stocks is under way, the capitulation of a so-called "perma-bear" would be a major event.

Addressing his bank's annual strategy conference in a London hotel, Mr Edwards said European stocks were "unambiguously cheap" and recommended them for any investor who was prepared to hold them for 10 years.

He also attacked UK pension funds, which have bought bonds and sold stocks in the last few years to the point where their holdings are virtually equal. "Even as a trenchant equity bear, I have to say that this is ridiculous," he said. "It allows the rest of us to pick up stocks at cheaper and cheaper prices."

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However, Mr Edwards denied he had reached "some moment of revelation", as he still expects stocks to fall further, possibly bringing the US benchmark S&P 500 index below the 666 level where it reached a trough in 2009. The S&P 500 closed slightly higher at 1,472 in New York.

He cautioned that anyone buying European stocks would bear the risk of sharp fall within the next 12 to 18 months. Mr Edwards also added that equities were "locked in a secular valuation bear market", and that experience in the US and Japan suggested that the market would need to endure more than two recessions before a bull market could start. "We haven't reached a culmination of despair."

He added that he was particularly concerned that high-yield bonds were overpriced, and that this could become "the first area to blow up in people's faces".

"In the sense that we are so far through the equity bear market, I'm relatively more bullish. I expect the S&P to go below 666. I expect there to be total carnage. But I'm more bullish than I was."

While Mr Edwards is prone to strong statements such as "the Fed will destroy the world", he has also acknowledged his flaws. In a September note, he wrote: "Regular readers will know that in the main, my market timing is unerringly inaccurate, normally months if not years too early."

Mr Edwards also has drawn on his personal life in his strategy dispatches. He famously described his adventures in speed-dating in a note in 2004 while working for Dresdner Kleinwort and once recounted a bike crash in Vancouver which resulted in a broken elbow.

He also once described walking on a cliff-top trail in California and falling, surviving by clutching on to a few bits of vegetation.